Flipping is ‘no flop’ for 90% of investors – Cameron Kusher

Nationally, the vast majority of flipped properties were sold for a profit last year.  That is according to the first Core Logic report created on flipped properties.  Cameron Kusher gives us more detail.
Kevin:  One of the things that always fascinates me is about the renovation market. People are constantly wondering if this is the time to flip. “If I were to do a renovation now, flip it over, would I make some money? How long would I have to hold onto it for?”
I’m interested to read a report from CoreLogic, which is the first time they’ve produced the Property Flipping Report. Joining me to talk about that, Cameron Kusher.
Probably like me, Cameron, you get asked this question quite often.
Cameron:  We do. Obviously, people want to know how many people are flipping their properties and whether or not they’re actually making a profit on that. This report goes to shed some light on whether they are making a profit and how many are flipping.
Kevin:  Are they making a profit? That’s the first question.
Cameron:  Generally, they are. Nationally, over the 12 months to June of last year, 89.1% of people who flipped their property in less than 12 months sold for a profit, and 89.9% of people who flipped it between one and two years made a profit. Overwhelmingly, the majority of the people who are flipping are making a profit.
Kevin:  What percentage of sales – do you know – overall would constitute flipping?
Cameron:  What we did is we defined flipping in two ways: less than one year and then one to two years. The reason we did that is because if you’re an investor and you’re reselling in less than one year, obviously, you have to pay the full rate of capital gains tax. Our theory was that fewer people would flip in less than one year. Then we looked at one to two years, which, again, if you’re an investor, you get a halving of that capital gains tax.
What we found is 1.3% of all sales over the year were flipped within a year and 5.7% were flipped within one to two years.
Kevin:  Have you been able to work out how that compares with previous years, Cameron?
Cameron:  We have. Historically, we look back, so if we go back five years ago, 5.1% of properties were flipped within 12 months, 1% were flipped within one to two years. So, it’s a little bit higher than both of those figures.
But if we go all the way back to 2002, for example, at the peak of the housing boom in Sydney and Melbourne at the turn of the century, 11.3% of all properties were being flipped within one to two years, 3.4% were being flipped in less than a year. Flipping has actually reduced quite substantially compared to where it was at the peak of the market.
Kevin:  …Comparing it back that far. But is it still declining?
Cameron:  It’s not still declining; it’s creeping up a little bit. But I think, obviously now, the next couple of years will be interesting because we are seeing the Sydney and Melbourne housing markets starting to slow down. Sydney is obviously seeing some value falls. And that’s where the prevalence of flipping has actually been the greatest, in Sydney and Melbourne.
Kevin:  What about areas around Australia? Is it more prominent in some areas than others?
Cameron:  It certainly is. In terms of flipping, as I said, Sydney and Melbourne are where you tend to find most flipping going on. Interestingly, though, it’s more inclined to be one to two years than less than one year. I think that is probably reflective of a lot of investment that has gone on in those two cities.
You also have a reasonably high amount of flipping in less than a year in Darwin. That could be potentially people getting themselves into a little bit of trouble. Values are falling in that market.
The areas where we’re not seeing a lot of flipping: Perth and regional Western Australia as well as the regional Northern Territories. I think, again, fairly weak markets so people aren’t buying and selling property with the expectation that they’re going to sell at a profit in a short period of time.
I think you can see the difference. The stronger markets are more inclined to see flipping; the weaker markets are less inclined to see flipping.
Kevin:  What about the regions compared to the cap cities?
Cameron:  In terms of the combined capital cities, 1.2% of properties are flipped in less than a year, 5.7% within one to two years. Not that different in regional Australia, 1.4% of properties are flipped within less than a year, 5.8% within one to two years, so there’s actually slightly more flipping taking place in the regional parts of the country.
Kevin:  Let’s have a quick look around the states. What about in New South Wales? Give me a summary on that state in terms of flipping.
Cameron:  In terms of New South Wales, if we look at Sydney versus regional New South Wales, 1.5% of properties in Sydney are flipped after a year, 6.8% within one to two years, and then in regional New South Wales, 1.5% are flipped in less than a year and 6% within one to two years. You can see that flipping is fairly similar in that “less than one year” category, but slightly higher in one to two years in Sydney than it is outside of Sydney.
Kevin:  What about Victoria?
Cameron:  In Victoria, again, Melbourne, you have 1.3% flipped in less than a year, 6.4% flipped one to two years, regional Victoria, 1.1% flipped in less than a year, 4.7% one to two years. Flipping is certainly a lot more prevalent in Melbourne than it is outside of Melbourne.
Kevin:  I think I read somewhere, too, the Mornington Peninsula is one of the most profitable regions for flipping.
Cameron:  It certainly is. Very successful down in that Mornington Peninsula area when people do flip.
Kevin:  What about Queensland? What’s happening there?
Cameron:  In Queensland, as you’d expect, not a huge amount of flipping going on. 1.1% flipped in less than a year in Brisbane, 5.4% one to two years. And then in regional Queensland, flipping is actually more prevalent, 1.6% of properties are flipped in less than 12 months, 6.6% are flipped in one to two years.
Kevin:  You mentioned earlier about Western Australia and how it’s a bit difficult there. Just give me a summary on WA.
Cameron:  Very low levels of flipping taking place in WA. 0.8% in Perth are flipped in less than a year, 3.2% flipped one to two years. And then in regional WA, it’s a very similar story: 0.8% flipped in less than a year and 3.1% were flipped within one to two years. You don’t see a lot of flipping behavior taking place in WA.
Kevin:  What about, finally, South Australia and Northern Territory?
Cameron:  In South Australia, not a huge market for flipping: 1.1% of properties were flipped in less than a year both in Adelaide and regional South Australia. Then between one to two years, you have 4.2% in Adelaide and 3.9% in South Australia.
Then if we go to the Northern Territory, again, not a huge amount of flipping taking place: 1.9% of Darwin properties flipped in less than a year and 4.1% flipped within one to two years. Then in regional Northern Territory, only 0.6% of properties were flipped in less than a year and 4.7% flipped in one to two years.
Kevin:  It’s a very interesting market, flipping, because it’s so easy to over-capitalize, particularly with inexperienced renovators. So, a pretty good insight there into what to do if you’re looking at flipping. It’s a great report reflecting that nine in ten Australian properties are flipped for a profit. That’s according to CoreLogic. And joining me to talk about that was Cameron Kusher.
Cameron, thanks for your time.
Cameron:  Thanks for having me, Kevin.

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